As we close in on holidays, we wanted to reflect on our first three months of operation.
We have been busy visiting leading farmers and agribusinesses across the East Coast of Australia. We also found time to settle our first loan! In clocking up plenty of kilometres and drinking our share of coffee and tea, a few things stood out:
Demand for alternate funding is strong
Farmers and agribusinesses want access to funding outside the banks. We regularly hear that all banks are the same and it is increasingly difficult and taking longer to access bank debt. This has created a need in the market for competitive non-bank/private debt. To date most private lenders have targeted higher risk, shorter term loans that sit outside bank appetite. Long-term solutions and relationships for better quality customers are harder to come by. This is precisely where Foundation Agri Finance is focusing and the feedback on our long-term, fixed-rate loan of up to 25-years is overwhelmingly positive.
Interest rates are up but the premium for long term rates is reducing
Interest rates have been volatile and it has been challenging to get a read on the market, particularly given the differing views of forecasters. What has remained constant is that inflation is sticky and above the targets of central banks. This means borrowers need to prepare for paying higher interest rates for longer.
Source: Refinitiv
The other key trend in rates is a compression between short and long-term interest rates or the ‘premium’ charged for the security and stability of long-term rates. As this graph shows, the spread between short-term interest rates (30-day BBSW) and long-term rates (5-year and 10-year interest rate swaps) peaked at close to 2.00% in 2021 and has steadily fallen since. The 5-year rate is now only 0.05% above the short-term rate. This is making long-term interest rates comparatively cheap.
Bring on the holidays and thank you for the support
It has been a big year and people are ready for the holidays including us! We wanted to thank everyone for their support, and we are excited about the opportunities that lay ahead next year. Until then all the best from the Foundation team and we look forward to working with you in 2024.
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